Stellar housing market ends the year in the shadow of cooling measures and Omicron

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/ EdgeProp Singapore
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December 24, 2021 1:31 AM SGT
Even private residential resale transactions are projected to end the year in the range of 19,000 to 20,000 units — the highest since 2010 (Photo: Samuel Isaac Chua/EdgeProp SIngapore)
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SINGAPORE (EDGEPROP) - Singapore’s residential property market soared to record highs this year. In just the first 11 months of 2021, developers sold 12,467 new homes, surpassing 2020’s full-year volume of 9,982 units.
Despite the latest round of property cooling measures that kicked in on Dec 16, which saw additional buyer’s stamp duty (ABSD) hiked and total debt servicing ratio (TDSR) tightened, property consultants are projecting that the year could still end with about 13,000 private new homes sold. “It would be the highest since 2013 when 14,948 units were sold,” says Ong Teck Hui, JLL senior director of research & consultancy.
Even private residential resale transactions are projected to end the year in the range of 19,000 to 20,000 units — “the highest since 2010 when 22,608 units were sold”, notes Ong.
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According to URA’s 3Q2021 final estimates, prices are up 5.1% year-to-September, says Tricia Song, CBRE head of research for Southeast Asia. She expects private home prices to rise by 6% to 7% for the full year, “in line with the Ministry of Trade and Industry’s narrowed 2021 GDP forecast of about 7%”, she says.
HDB STIRLING MEI LING QUEENSWAY STIRLING RESIDENCES - EDGEPROP SINGAPORE
The sharp increase in transaction volume this year, amid bullish demand coupled with shrinking sales inventory, could fuel strong price growth (Photo: Samuel Isaac Chua/EdgeProp SIngapore)

Latest cooling measures ‘unexpected’

On a q-o-q basis, the URA residential price index rose just 1.1% in 3Q2021, following a 0.8% rise in 2Q2021. In July 2018, the ninth round of measures were imposed after the URA price index rose for two consecutive quarters: 3.9% in 1Q2018, and another 3.4% q-o-q in 2Q2018. “The expectation had been for much higher price increases to occur before cooling measures would be imposed,” says JLL’s Ong. “The latest cooling measures were therefore unexpected.”
However, Ong acknowledges that prices and fundamentals began to diverge in 2020 when the URA index rose 2.2% during a severe recession. The sharp increase in transaction volume this year, amid bullish demand coupled with shrinking sales inventory, could fuel strong price growth, he reasons.
The ABSD rate adjustments this time around are harder-hitting compared to the changes in July 2018, says Ong. And they were coupled with a tightening in TDSR too. “Lowering of the TDSR to 55% from 60% is an additional dampener in the latest measures,” he adds.
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While loan-to-value (LTV) from HDB has been reduced to 85% from 90% before, LTV has remained unchanged at 75% for first-time home buyers taking a mortgage. “The government continues to practise a policy stance to shield first-time home buyers from new cooling measures, especially when intentions of genuine family formation are at play,” says Lam Chern Woon, Edmund Tie head of research & consulting. (Find HDB flats for rent or sale with our Singapore HDB directory)
PANORAMIC VIEW SCOTTS ARDMORE CONDOS - EDGEPROP SINGAPORE
Foreign buyers made up just 4.5% of total private non-landed transactions this year., while Singaporeans made up the majority (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Revisiting impact of July 2018 measures

If July 2018’s cooling measures is any guide, average property prices rose 1.2% a year after the measures were introduced (from 3Q2018 to 2Q2019); compared to a 9.1% increase in the year before the measures (3Q2017-2Q2018), says CBRE’s Song.
Within a year after the measures (August 2018-July 2019), developers sold 9,489 new homes, compared to 9,743 units prior to the measures (August 2017 to July 2018), according to CBRE Research. The resale market, however, bore the brunt of the cooling measures: it contracted 46% to 9,098 units from 16,943 units in the previous 12-month period (3Q2017 to 2Q2018).
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By segment, property prices in the Core Central Region (CCR) fell by 0.5% from 3Q2018 to 2Q2019, while prices of properties in the Rest of Central Region (RCR) and Outside Central Region (OCR) rose 3.3% and 1.2% respectively, a year after measures were in place, according to CBRE Research.
“The cooling measures will help improve affordability for first-time home buyers,” says Song. This should reduce the likelihood of a hard landing should interest rates rise in the near future, she adds.
In view of limited new launch pipeline in 2022, CBRE Research’s Song expects new home sales to “normalise” to the 9,000- to 10,000-unit range next year. Meanwhile, prices could be flat or see a 1% to 3% increase in 2022. Resale volume is also expected to “normalise” as those buying the second or more property incur higher ABSD, she adds.
MARGARET VILLE HDB DAWSON SKY RESIDENCE SKY OASIS SKY VILLE - EDGEPROP SINGAPORE
The cooling measures will help improve affordability for first-time home buyers; this should reduce the likelihood of a hard landing should interest rates rise in the near future (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Inflationary pressures

Alan Cheong, head of research, Savills Singapore, is sticking to his forecast of a 5% to 7% price increase in 2022, which is in line with the nominal GDP growth. “A 7% price rise in 2022 is neither excessive nor alarming because there are strong inflationary pressures on the economy next year,” he says.
Cheong does not expect the cooling measures to have a significant impact on the domestic housing market. The 10% hike in ABSD for foreigners to 30% is unlikely to affect demand at the top end of the market either, he argues.
According to Ismail Gafoor, CEO of PropNex, foreign buyers made up just 4.5% of total private non-landed transactions this year., while Singaporeans made up the majority.
Many believe that real estate is a good hedge against inflation, Cheong observes. “Inflation will drive up the cost of construction and that may be passed on to buyers by the developers,” he says. “On the interest rate front, so long as the increases are in measured proportions, they should not retard housing sales.”
VIEW FROM HIGH POINT - EDGEPROP SINGAPORE
Demand from foreign buyers in the luxury segment of the residential market could be curbed in 1H2022, but expected to pick up in 2H2022 (Photo: Albert Chua/EdgeProp Singapore)

Heightened risks

If hyperinflation rears its head, however, it will be a different matter, notes Cheong. “The corresponding rise in interest rates to combat that would be detrimental to the demand for new mortgages, and have a negative impact on existing ones by increasing the servicing burden on mortgagees,” he says.
Demand from foreign buyers in the luxury segment of the residential market could be curbed in 1H2022, notes Nicholas Mak, head of research & consultancy at ERA Realty. However, he expects transactions to pick up in 2H2022. “Some of these buyers are looking at wealth preservation, and if they like the property and want to buy for their own use, they may just bite the bullet and pay the ABSD,” he adds.
Despite the property cooling measures, residential property prices are still expected to rise in 2H2022 due to inflation, says Mak. "The cost of land, construction and replacement cost of real estate will increase," he adds. Rental rates are likewise expected to rise in line with demand for rental property as foreigners return.
“As for the Omicron variant, society has grown more stoic and resigned to living with mutations after repeatedly witnessing failed attempts to further open up both the economy and cross-border travel,” says Savills’ Cheong. “Unless governments globally sound an even more shrill alarm bell over this or future variants, society will merely shrug it off and carry on with business as usual, albeit at a subdued rate because of ongoing pandemic measures.”

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